Notes from Founders mentor Founders [SaaS edition] – April 2018

On 13th April 2018, I hosted a panel discussion with Varun Shoor, founder of Kayako and Pallav Nadhani, founder of FusionCharts. It was an experiment to see whether a many-to-many discussion between SaaS founders turns out to be useful for early stage startups.

To ask questions to the SaaS founders panel, I had received 19 applications, out of which 5 were selected. The call was not recorded so founders could talk frankly. Here are some generic notes and insights from the one hour call. (We all realized that one hour for five founders isn’t really sufficient.) ...  Read the entire post →

Copying ideas is highly underrated

No man’s an island and, as a corollary, no startup is truly unique. Media oversells us the virtue of breakthrough ideas. Journalists are paid to highlighting what’s new and noteworthy. Imagine the number of clicks an article would get if it was titled: ‘Here’s the nth example of a Chinese firm copying what’s working in the west’.

To catch our attention, publications run stories that celebrate innovations.

Wright brothers got the fame, but someone else made all the money

The invention of the airplane was definitely a breakthrough moment for humanity and the Wright brothers deserve all the fame they got. But economically they didn’t do as well as Boeings and Airbuses of the world. Wright brothers knew it themselves that they’re never going to make money from what they were doing. In a conversation with their biographer, Orville Wright said: ...  Read the entire post →

Mathematicians and startup founders

Throughout history, mathematicians and physicists, like entrepreneurs, have craved for a theory of everything. They’ve been looking for a set of principles that can predict and explain all phenomena that we observe. In case of mathematics, this search led to mathematicians Bertrand Russel and Alferd Whitehead write a three volume (thick book) Principia Mathematica. Among other results in the book, they dedicated several hundred pages to derive 1+1=2 from even more basic “self-evident truths” (called axioms). ...  Read the entire post →

Reliably detecting humans on the Internet

1/ There’s ONE big unsolved problem for anyone who’s interested: detecting humans on the Internet.

It has potential to unlock billions of dollars of value. Here’s how.

2/ Today, some of the biggest tech companies (Google, Facebook, Twitter) make billions of dollars by monetising human attention.

Digital ad industry is total of $280Bn.

3/ The reason Facebook, Google make this amount of money is because their algorithms for detecting bots are closed source.

There’s a continual arms race between click-farms / bot-makers and bot detecting algorithms at these companies. ...  Read the entire post →

Businesses get killed by non-competitors

Entrepreneurs worry about competition all the time. And they’re correct in doing so. I think the “focus on customers, ignore competition” is a terrible business advice. Customers will never ask you to introduce switching costs, yet that’s precisely what businesses should do in order to be profitable for a non-trivial amount of time.

In my last article, I wrote about how an entrepreneur should go about creating a legal monopoly via network effects and economic moats. In this article, I’ll talk about how even legal monopolies get killed.  ...  Read the entire post →

How to create legal monopolies via network effects and economic moats

If there’s one thing that customers dislike, it’s the barriers in switching between competitive products. As customers, we want to retain our freedom. However, as entrepreneurs, we are incentivized to curtail that freedom. As I wrote earlier, head to head competition in a market pushes profits to zero. To make a profit, an entrepreneur needs to find a way to keep customers and competition away from each other.

There are two ways this separation can happen:

  • Prevent competition from entering into your market
  • Prevent customers from switching to a competitor

Obviously, these tasks are hard in a free market (and that is why market pays through the roof for companies with a sustainable competitive advantage). Unless you sell drugs, you can’t (and shouldn’t) hire an assassin to prevent competition. Nor, can you (and should you) threaten your customers with dire consequences if they switch. ...  Read the entire post →

Bitcoin’s value beyond hype

A product or a service creates value when it solves a human need. When Amazon was founded, it was a lifesaver for book lovers in remote places where they didn’t have good bookstores. People of the world allowed Jeff Bezos to become rich because he made their life simpler. We happily exchange money for services when it enables us to make our lives better. Librarians help others but scientists help themselves. Guess who makes more money?.

Just like Amazon solves a real-world need, so does Bitcoin. (Of course, like Amazon stock, people speculate on Bitcoin’s price as well.) What needs does bitcoin solve for? The answer to that is long-winded. The network effects and feedback loops in bitcoin ecosystem make teasing out the value question really difficult, but I’ll try doing that here. ...  Read the entire post →

Bitcoin is mother of all network effects

Bitcoin is such a strange beast that it’s hard to really understand what it really is. Some people call it the biggest Ponzi scheme ever invented, while others see it as the currency that’ll power a decentralized, libertarian utopia. Whatever it is in reality (and whatever “reality” really means), there is no question that network effects are playing a central role in making it the most hotly debated idea of recent times.

I’m a big fan of the power of network effects and have previously written about different types of network effects. In this post, I want to talk about what network effects are at play in bitcoin. This post assumes you know what bitcoin is and how it works at a high level. In case you don’t, go through my introductory post on basics of bitcoin first...  Read the entire post →

Reading Recap #2: Basics of Ethereum and mental models for blockchain

After my first weekly reading recap on basics of bitcoin and blockchain, I couldn’t post a recap last week as I was away attending my weekly class of Stanford’s Seed program in India for growth stage entrepreneurs.

My favorite part of the week was the design thinking class where various teams (of 4-5 people) had to interview people, discover a problem, brainstorm, prototype and test potential solutions — all within one day. The team I was part of went to autorickshaw stands and had detailed conversations with drivers about their lives, hopes, regrets, likes and dislikes. My biggest learning (and shock) was about their idle time: auto drivers don’t do anything for 90%-95% of their workday and so are unable to meet their ends meet (earning only Rs 200-600/USD 4-10 per day). We discovered lots of economic inefficiencies that are waiting to be fixed by an entrepreneur. I recommend you see my entire Twitter thread with detailed data and observations. ...  Read the entire post →

Cryptocurrencies are belief systems

Making fun of hundreds of new cryptocurrencies launching every month is understandable. People are confused by all diversity of cryptocurrencies (bitcoin, litecoin, ethereum, ripple, etc.) because historically there was never a competition among currencies. All we’ve ever known or used in our lives is just one currency: the one the government issues. Imagine telling someone who had grown up reading the New York Times in the early 1990s that in less than two decades there will be hundreds and thousands of publications covering the city. He would have laughed at you. Today, the same person would be consuming news on Twitter or discovering new restaurants on Yelp, and catching up on celeb-gossip on Instagram. ...  Read the entire post →